70% of India’s small, mid-sized firms yet to start GST preparations

About 70% of the country’s small and mid-sized firms are yet to begin preparations to get synced with the goods and services tax (GST) structure even as the country prepares to roll out the biggest indirect tax reform from July 1.

Consulting major KPMG and the Federation of Small Medium Enterprises (FISME) said that while large companies are ready to move to the new tax structure, small ones, especially those in the unorganised sector, are battling against time. Sources said many small entities may not be “ready” by July 1 for the GST rollout, leading to disruption in their businesses and payment cycles. This could even result in “some job losses” in the initial phase.

“About 70% of the MSMEs are not yet prepared for implementing GST. The FISME, along with Small Industries Development Bank of India (SIDBI), has organised a helpline, which will be operational soon…the idea is to handhold the small companies and most general queries will be answered immediately while specific problems that are brought up will be resolved in 48 hours,” Anil Bhardwaj, general secretary, FISME, told HT.

Industry insiders said that many of these firms, due to uncertainty, had been postponing the exercise required to move towards adopting the new system.

Manoj Fadnis, former president at the Institute of Chartered Accountants of India, said there could be disruption in business cycle, especially among those in the unorganised sector in the initial stage. “There will be disruption in businesses as many of them are unlikely to be GST-compliant, there could be a disruption in the payment cycle, which would impact smaller firms that employ a large number of daily labourers,” he said. Fadnis added that the GST roll-out is critical and needs to be implemented despite problems.

“Not more than 30% of SMEs are ready for GST…the other problem is that till the final tax structure is decided, companies cannot fix the new prices for their goods. The entire exercise needs to be done hurriedly as it will have to be implemented from July 1,” said Waman Parkhi, partner, indirect tax, KPMG.

Finance minister Arun Jaitley earlier said that while there could be teething problems once the GST is implemented, he added that “in a great experiment of this kind that (teething problems) always likely to be there”.

Last week, revenue secretary Hasmukh Adhia undertook a tour of the northeastern states to review their preparedness to roll out GST. A senior finance ministry official, on condition of anonymity, admitted there is little time in hand for rolling it out in a “seamless manner.” “There could be some problems, we are aware, we are trying to ensure that the transition is as seamless as possible,”’ the official said.

Under GST, all firms—micro, small and big — would have to move to a new and more advanced digital technology to facilitate audit reports, tax credits and payments among other things. Many companies will have to make several entries and chalk out the entire chain of business transaction and process. Mandatory compliances, which company activities may require, and listing such action points would be critical and needs to be undertaken after a thorough professional analysis, KPMG said.

All central taxes, including excise duty and service tax besides state levies such as sales tax, value-added tax, entertainment and purchase taxes, would be subsumed into one, once the GST is implemented, thus creating one national market. It is also expected to further boost economic growth by about 1.5 percentage points.